SoftBank reportedly walking away from Sprint/T-Mobile merger talks

SoftBank CEO Masayoshi Son speaks at Mobile World Congress earlier this year.

The long-anticipated marriage between T-Mobile and Sprint is reportedly dead—at least for the time being.

Nikkei Asian review was among the first to report that Sprint parent SoftBank plans to end talks with T-Mobile parent Deutsche Telekom, “dashing the Japanese technology giant’s hopes of reshaping the American wireless business.”

The Wall Street Journal picked up on the story, saying SoftBank’s board met in Japan over the weekend and expressed concerns about handing over control of a combined carrier to T-Mobile and Deutsche Telekom. Instead, Sprint will invest heavily to upgrade its network, the Journal said, citing unnamed “people familiar with the matter.”

Investors were clearly disheartened by the news, sending shares of Sprint down roughly 9% and shares of T-Mobile down more than 5% by late Monday. Predictably, shares of publicly traded tower companies rose more than 3% on the news, however, according to Wells Fargo Securities.

A merger between the two carriers could still eventually occur, of course—SoftBank’s decision to walk away may be a negotiating tactic—but one looming question is whether Sprint can thrive in the U.S. wireless market. The nation’s fourth-largest carrier has compiled an extremely valuable portfolio of spectrum, it has grown its market share in recent quarters through aggressive promotions, and it continues to cut costs in major ways.

But the operator is still billions of dollars in debt, much of which will come due over the next few years. Sprint had recently been in talks to form a wireless partnership with Comcast and Charter, but SoftBank may be willing to continue to help fund Sprint’s turnaround singlehandedly.

“We had often questioned why (Sprint Chairman) Masa Son would give up control if there was no premium to be paid (which had also been reported),” Jennifer Fritzsche of Wells Fargo wrote in a note to investors. “While Sprint shares are feeling more of the pain on this speculation, the fact that SoftBank is seemingly making a purposeful decision to walk away speaks loudly to the fact that Sprint’s back is not against the wall. In the Sept. quarter, Sprint reported a 10% growth in postpaid total gross adds (best growth of any carrier), while T-Mobile reported a decline of 6.5%. By our estimates, Sprint’s share of gross adds has increased the last three consecutive quarters…. (W)e continue to believe the high-band spectrum (which Sprint has so much of) is going to play an increasingly important role in the 5G world.”